Tuesday, January 03, 2006

Fuel Surcharge Tyranny

Happy New Year to all! Of course, our prayers and thoughts are with the miners and their families in West Virginia. We all hope for a happy outcome to that disaster.

But on to the topic at hand today, and that is "The Fuel Surcharge, the new "device" used by Class One Railroads to accomodate fluctuating diesel fuel prices in their tariffs. Anyone who ships by rail today is aware of the "Fuel Surcharge", a tariff that is added to all published freight rates. Several months ago when the surcharge was initiated, rates would fluctuate somewhere between 2% and 4.5% to 5%. Then everything changed. As Autumn '05 approached, the surcharge ballooned to 10%, 11%, and 12%, finally resting at an unbelievable 18.5% for BNSF Shippers for December 2005!

One problem is obvious for Rail Shippers. If you work up a competitive quotation, and base your freight component on a lower surcharge, the increases which we have recently seen blow your bid out of the water. The difference between a 4% fuel surcharge and a 12% fuel surcharge will ultimately mean a financial loss for such a project as bid. And guess what? No owner who awards a contract based on your bid will cut much slack here. All things equal, you lose!

Another problem: The 18.5% Fuel Surcharge for the BSNF was announced to shippers on the first day of November. At that time, is was an accurate reflection of fuel prices. Guess what happened? If you recall, fuel went down in price. But the BNSF, in this case, did not lower their surcharge, it remained in place. The verbal abuse heaped on the BNSF in this case is similar to the abuse heaped on any Gas Station who raises the price for gasoline already in their tanks just because OPEC raised their price at the wellhead.

Here is a simple solution. Please, Class Ones, do this. If you are a high-powered exec, you can even take credit for thinking it up. The solution? Admit that fuel prices are not going back to the levels of late 2004. Simply raise your published tariffs so that the fuel surcharge can be lowered to a much smaller and more controllable percentage. Easy enough. It will make life much better for those of us who can take advantage of shipping by rail.


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